Business Combination And Financial Performance Of Banks In Nigeria Banking Industry

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Business Combination And Financial Performance Of Banks In Nigeria Banking Industry


Abstract


In this research work titled “Business combinations and financial performance of banks in Nigeria banking industry” the researcher examined the relationship between total asset of Nigerian banks on the return on asset of the bank. The relationship between volume of shares of banks on the return on asset of the banks. The association between earning per share and return on asset of Nigerian banks. And also the relationship between total deposit and return on asset of the banks. The researcher made use of only secondary data from six years annual report and accounts of the two quoted bank (Access bank Plc and Zenith bank Plc) listed on the Nigeria stock exchange were collected and regression analysis was utilized in the data analysis. The researcher found out thatthere is significant relationship between total asset of Nigerian banks on the return on asset of the bank. there is significant relationship between volume of shares of banks on the return on asset of the banks. It was also discovered by the researcher that there is a significant relationship between earning per share and return on asset of Nigerian banks. This research work equally shows that there is relationship between total deposit and return on asset of the banks. Based on the findings the study affirms that for a bank to survive in the current dispensation it needs to maximize its comparative advantage (strength) by promoting its uniqueness in the areas where it performs best. The decisive factors for competition and profitability in the new era would be the optimization of resources by the emerging mega banks.


Chapter One


Introduction

1.1 Background of the Study

Firstly, the study of Business combination and financial performance of banks in Nigeria banking industry is introduce as the main thing which business merger and acquisition rely on a skill or knowledge brought together by the merger to accomplish business. However, Business are beginning to tell the full impact of the recession. To bring out development in companies joining together of merger and acquisition of the study.

Furthermore, techniques and growth is necessary to determine the performance and continual existence of any business organization without growth, a business hardly attract good management to itself. Hence the use of merger and acquisition as a techniques for growth and survival strategy in a depressed economy like it appears to be on the increase in recent time. This is not surprising nor considering large number of business failures and flop as a recent result or advise of micro and macro economic climate. It indicates that in a large or small scale, that merger and acquisition are necessary.

In the face of such hostile business climate, actually, some business organization that belongs to the “wise group’’ started, thinking of how to pull their resource together by the way of the impact of business merger and acquisition as a techniques for growth survival strategy in a depressed economy. Meanwhile, Business merger and acquisition has played an important role in the growth and survival of many firms in Europe, United State of America, and Nigeria. But before venturing into such a gargantuan adventure, financial managers should view it as organization or employers.


1.2 Statement of the Problem

In the high of the confusion and tumults of the modern business environment globally, some firms have flooded up while other only managed to keep a float. It is but interesting to observe that in the midst of such unfavorable business environment, Some enterprises do not merely survive but post super profit. The logical question is what could account for the divergent fortunes of some firm of identical size and status in the some industry operating in the same economy. Hence not pretending to have all the answers. I make bold to state, that business merger and acquisition has become one of the fashionable surviving strategy for many companies.

It is therefore, the intension of the study to investigate the effect merger and acquisition on the performance of some selected companies in Nigeria.


1.3 Objective of the study

This research work titled “Business combination and financial performance of banks in Nigeria banking industry” is aimed at:

  1. To examine the relationship between total asset of Nigerian banks on the return on asset of the bank.
  2. To investigate the relationship between volume of shares of banks on the return on asset of the banks.
  3. To ascertain the association between earning per share and return on asset of Nigerian banks.
  4. To Examine the relationship between total deposit and return on asset of the banks.

1.4 Research Questions

Based on the above research objectives, the researcher developed the following research questions

  1. What is the extent of relationship between total asset of Nigerian banks on the return on asset of the bank?
  2. To what extent do volume of shares of banks relate with the return on asset of the banks?
  3. What is the extent of the relationship between earning per share and return on asset of Nigerian banks?
  4. To what extent does total deposit relate with return on asset of the banks?

1.5 Research Hypotheses

The following research hypotheses were developed by the researcher;

  1. Ho: Total asset of Nigerian banks does not have any significant relationship with the return on asset of the banks.
    H1: Total asset of Nigerian banks has significant effect on the return on asset of the banks.
  2. Ho: Volume of shares of banks does not have any impact on the return on asset of the banks.
    H1: Volume of shares of banks has so many impacts on the return on asset of the banks.
  3. Ho: There is no relationship between earning per share and return on asset of Nigerian banks.
    H1: There is significant relationship between earning per share and return on asset of Nigerian banks.
  4. Ho: There is no relationship between bank deposit and return on asset of the banks.
    H1: There is significant relationship between bank deposit and return on asset of the banks.

1.6 Significance of the Study

The study shall provide to both researchers and non- researchers such as investors, customers and the entire public on the implication of the effect of business combination as a strategic option available to improve organizational performance in banking industry in Nigeria.

It will also serve as a source of reference for researchers and students of management science on the top- ic as it relates to business combination in recent years.


1.7 Scope of the Study

The study covers between 2011 to 2018 for two quoted bank (Access bank Plc and Zenith bank Plc) listed on the Nigeria stock exchange rep resenting four years pre-merger period and another four years representing post-mergers since the business combination took place in December, 2015. This period covers the time financial report were pre- pared using fair value accounting based on the implementation of International Financial Reporting Standards. The proxies for this study are Return on Capital Employed, Return on Investment, Return on Assets and Earnings Per Share.


1.8 Definition of Terms

To ensure a proper and comprehensive understanding of this research work, the under listed terms are defined thus:

1. Merger:

Is a corporate restructuring activity which involves the combination of two or more companies in such a way that only one survives while the others are dissolved.

2. Acquisition:

Refers to the situation where one firm acquires another and the latter ceases to exist. In the case of acquisition, the target company is usually a firm that is not doing well in terms of financial and management activity.

3. Amalgamation:

Is the combination of two or more companies in such a way that all the former entities are collapsed giving way for a new and separate entity to be form.

4. Take-Over:

In contrast to what happens in acquisition, a weak firm voluntarily surrenders to a strong firm in a form of acquisition. The acquiring firm strategically purchases shares from the market without the knowledge of the management of the weak company to acquire controlling interest.

5. Corporate Restructuring:

Corporate restructuring can also be termed business combination and it includes merger and acquisition (M&A), amalgamation, takeover, leveraged buyouts, capital reorganization, sale of business units and assets etc.

6. Return on Equity:

The return on equity is net profit after tax divided by share holders‟ equity which is given by net worth. This is the net income of an organization expressed as a percentage of its equity capital, i.e. it indicates how well the firm has used the resource for owners (shareholders).

7. Shareholders’ Fund:

This refers to the amount of equity in a company, which belongs to the shareholders. The amount of shareholders’ funds yields an approximation of theoretically how much the shareholders would receive if a business were to liquidate. It is calculated by subtracting the total amount of liabilities on a company’s balance sheet from the total amount of assets.

8. Total Volume of Deposit:

This represent the total volume of deposits received by the commercial banks. They are also referred to as deposit liabilities. It consists of demand deposit, time deposit and fixed deposit.

9. Total Assets:

This is the final amount of all gross investments, cash and equivalents, receivables, and other assets as they are presented on the statement of financial position.


Chapter Five


Summary of Findings, Conclusion and Recommendations

5.1 Summary of Findings

The study aimed at determining the effect of Business Combination on the Financial Performance Of Banks In Nigeria Banking Industry as in the case of Zenith Bank and Access bank in 2014 December since Business Combination is considered a good tool to restructuring and growth of a firm.

On the relationship between Return on Capital Employed (ROCE) and Return on Equity (ROE), the study established ROCE was found to have no significant effect on ROE after the merger at 0.05% level of significance. The firm’s ROCE declined from 25.22% in 2015 to 17.8% in 2016 and rose to 20.62% in 2017 before declining in 2018.

On the relationship between Return on Investment (ROI) and ROE, the study established that ROI was found to have a significant effect on ROE after the merger at 0.05% level of significance. The firm’s ROI revealed that there was a fall from 22.08% in 2015 immediately after the merger to 17.13%. It rose to 18.54% in 2017 and declined to 11.65% in 2018.

The findings on Return on Assets (ROA) shows that the firm’s ROA declined from 10.68% in 2015 to 7.74% in 2016 after which it rose slightly to 8.65% in 2017 and declined to 5% in 2018. ROA has no significant effect on ROE since the level of significance is more than 0.05%.

The firm’s Earnings per Share (EPS) declined from 482k in 2015 to 358k in 2016 and rose again to 413k in 2017 and fell to 243k in 2018. The findings show that there is no significant difference between EPS and ROE since the level of significance is more than 0.05%


5.2 Conclusion

The study investigates the impact of business combination on financial performance Of Banks In Nigeria Banking Industry in 2014. Secondary data were collected and conclusions were drawn from the results as follows;

Based on inferences deducted from the specified model, it shows that each of the financial ratio components employed to measure the impact of business combination on financial performance of Nigerian Breweries Plc. There is a significant difference in the pre and post mergers on Return on Assets and Re- turn on capital employed in the merger between Zenith Bank and Access bank. However, there is no significant difference in the pre and post-mergers on earnings per share and Return on Investment.

Empirical results according Momodou, et.al (2017) shows the financial performance of firms listed in the United Kingdom making a comparism between 5 years pre and 5 years post-merger shows that some variables are positively related. Adegboye, (2012) results using financial ratios show that there is no sig- nificant improvement in the financial performance of post mergers.


5.3 Recommendations

Following our research findings, the following suggestions are recommended.

  1. Return on Assetsafter the merger increased in 2016 which is an indication that the firm trans- formed its assets into positive use but it declined in 2017 and 2018 respectively which indicate that the firm did not transform its assets to profitable use. They should embrace diversification and financial innovation from producing new products and services.
  2. The earnings per share increased in 2013 and declined slightly in 2014 and consistently went down which indicate the performance of the company. They should grow revenue, lower cost as a percentage of revenue and financial engineering
  3. Return on Capital Employed declined after the merger which is an indication that the fund was less productive and inadequate for building shareholders’ value. The company put to productive useits fund and get more fund for expansion.
  4. In term of Return on Investment, the company’s fund should be utilized appropriately and put in- to proper use.

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